Article Stub: Contracting into Federal Common Law

[I’m writing a series of posts I call article stubs – the germs of papers I’ll likely never write. Here was the first, finding offerors under 2-207. Dan Markel might – or more likely might not - approve. I used to talk about these pre-draft ideas with him, and he mercifully steered me off most of them before they saw the light of day. In his honor, here’s another bad idea. Feel free to tell me so.]

“There is no general federal common law.” We all know it, even though we sometimes, wrongly, qualify the statement “…in diversity cases.” Though the decision’s constitutional roots are at best obscure, Erie teaches us that federal judges can’t create substantive rules of decision without constitutional or statutory sources. It’s an iconic case – and an ironic one, as it might be an example of the roving lawmaking that it abjures.

But what if you generally liked that set of precedents that followed Swift and preceded Erie? What if you, as Justice Swayne once did, proudly hold that “We shall never immolate truth, justice, and the law, because a state tribunal has erected the altar and decreed the sacrifice.” What if you just wanted to empower federal judges hearing your contracts case to resort to their own intuitions – guided, no doubt, by the informed views of other federal courts. Could you contract into a general federal common law framework? Under traditional conflicts principles, the answer is likely “no.” See Restatement 187 cmt. f (“The forum will not, for example, apply a foreign law which has been chosen by the parties in the spirit of adventure or to provide mental exercise for the judge. Situations of this sort do not arise in practice.” ) But traditional conflicts principles needlessly discourage innovation and now motivate parties to choose arbitration (where they can benefit ex ante by giving ex post discretion to decisionmakers.) Courts should accept a wider range of choice of law clauses, and should start by permitting parties to opt out of Erie.

Discuss.

Share

Dave Hoffman

Dave Hoffman is the Murray Shusterman Professor of Transactional and Business Law at Temple Law School. He specializes in law and psychology, contracts, and quantitative analysis of civil procedure. He currently teaches contracts, civil procedure, corporations, and law and economics.

2 Responses

As a descriptive matter, neither the ability to create federal common law nor the applicability of Erie is waivable or conferrable at the choice of the parties. So how an ex ante contract would make any difference (and how would that provision even look, since the court is not in privity)? As a normative matter, parties already get the flexibility to create privatized procedure relatively wholesale through arbitration, so why would customized public litigation be valuable enough to sacrifice the public goods of judicial adjudication to private whims?

Simply, the parties would choose pre-Erie Swift common law as their law, sort of like choosing foreign law. As you point out, since there’s no connection with the forum, and the choice would probably be seen as whimsical (it is!!) under the RST, I don’t think it’s enforceable.

I think it’s true that this is a form of subsidy that courts would give litigants, but how is it a different subsidy in kind than the parties choosing the law of another state?